Thursday, July 31, 2008

Governments misuse corporate tax policies, think tank says

Quebec among those singled out. Fast-growing, leading-edge sectors face undue burden because of micromanagement

Canadian governments are "whittling away" the gains to be had from recently reduced corporate taxes because of an attempt to micromanage their economies, and shift an undue amount of the business tax burden on fast-growing, leading-edge sectors, says a latest analysis of the country's tax policies.

The C.D. Howe Institute's latest report on Canadian tax policies, released yesterday, issued a stark warning to governments that pursue tax initiatives aimed at boosting the fortunes of "structurally declining industries," such as manufacturing and forestry. The provinces singled out for advocating such measures in their most recent budgets were Ontario, Manitoba and Quebec - which are among the highest-tax jurisdictions in the country, the think tank said.

These tax policies - such as accelerated writeoffs of capital equipment and sector-specific capital tax reductions - has led to what the think tank said was a "larger" distortion in the corporate tax system. As a result, fast-growing, knowledge-based industries, which are seen as key to future economic growth, face much higher taxes on business investment than elsewhere and compared with other industrial sectors.

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